Special Needs Trusts

Special Needs Trusts serve the purpose of providing for a person who has a disability, whether the disability is currently officially recognized by the state or federal government or not. There are two types of Special Needs Trusts.

Older mother and daughter laughing together while sitting outdoors.

1st Party Special Needs Trust:

A 1st party Special Need Trust is used when the person with the disability has or gets money that will interfere with other benefits.  For example: Benjamin, a 25 year old person living in a group home has inherited $40,000 from his grandmother, because his mother died before his grandmother, and he is getting part of her share.  Now Benjamin has too much money to remain qualified for government benefits.  He establishes a 1st party special needs trust to hold the money.  The money is now available for Benjamin to use for travel, entertainment, and personal needs.  There are restrictions on how the money can be used.  These restrictions vary a little, state by state.  However, in all cases, the state is the beneficiary of any funds left in the account at the death of the beneficiary.  Generally, this trust is only needed for an adult with a disability, since children do not typically have assets. 

3rd Party Special Needs Trust:

This trust is created by a person who plans to gift money to a person with a disability.  The gift could be in the form of inheritance, life insurance proceeds, or just an outright gift.  Typically, this trust is created by a parent or grandparent and can be created right now, while you are still living, or can be part of your estate planning documents that do not actually legally exist until you have died. When developing this trust, we explore topics such as:

  •  who should serve as a caregiver consulting team,
  • who would be an appropriate trustee, 
  • under what circumstances the trust might terminate, 
  • whether or not we might be okay with replacing some government benefits with trust assets, if it is better for the person with the disability, and who the ultimate beneficiaries are, if there is money still in the trust at the death of the beneficiary.

This type of trust is always superior over the 1st party special needs trust because the state does not have to be the beneficiary of any funds that are left over at the end of the disabled person's life.  This trust is appropriate for both children and adults with disabilities. 

 

We can provide you with the education and guidance you will need to determine whether or not a Special Needs Trust is a valuable planning tool for you, how to choose your caregiver consulting team and/or trustee, and which options are best to include when providing direction to the trustee regarding distribution determinations during the life of the beneficiary.  Careful planning and careful drafting are key to creating a trust that will function the way that you intend it to. 

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